The GST law execution in India would have been started through the narrative of national ambition and that of a global exception. To ease the whole GST framework for India Inc the government is enduring a lot via revising the reporting method to make the GST a Good and simple tax for exclusively non-compliant assessees would be asked or obligated the diligent ones would not get affected.
One such modification would be reported via the government vide Notification No. 14/2022 – Central Tax dated July 5, 2022, in Table 4 of GSTR 3B, meant for Input Tax Credit (ITC) related information. The mentioned revisions would be made available on the GST portal from 1st September 2022. The mentioned below aspects have been revised by the government:
- Compulsory reporting of reversals on account of ineligible GST ITC in Table 4(B)(1) which are permanent in nature and are not reclaimable, for e.g., blocked credits under section 17(5), reversals under Rule 42 & 43 on account of exempt supplies, and others.
- ITC reversal reporting is not permanent in nature, Table 4(B)(2) and reclaim that in Table 4(A)(5) with specific reporting of the mentioned information in Table 4(D)(1) as well [this is a new Table inserted now]. It comprises ITC reversals on account of non-payment to the vendor within 180 days, ITC reversal emerging in GSTR 2B but not accounted for in books, and others.
The need for the mentioned above revision in reporting of reversals of ITC within the GST provisions was needed before. But the revisions would not comply effectively via assessees and merely eligible ITC or ITC available and ITC reversed would be fetched in GSTR 3B. These amendments shall draw transparency in reporting via the assessee and shall support the investigators to reconcile the numbers of GSTR 3B with the books with the effective tax administration.
There are some factual goals of the government behind making the same revisions like (a) to auto-populate and co-relate the data of GSTR 3B with GSTR 2B, and that of GSTR 9 with GSTR 3B; and (b) to secure constancy in the practice comply in reporting ineligible ITC and various reversals of ITC in GSTR 3B. But the same surged the complexity in GSTR 3B filing which was considered to be the summary return during its execution. On the basis of our discussions with some clients at distinct levels and our own experience in helping these clients in their regular compliance, we have outlined some issues attributable to these modifications below:
Unaccountable ITC Under Section 17(5) Not Being Accounted Separately in ERP
In the majority of the companies, the process of accounting for vendor invoices would be structured in a way that the GST amount which does not qualify for ITC does not get recorded separately instead the whole transaction amount would get blocked in the expense GL itself. Hence same would be tough to pull the report of the ineligible ITC books for a specific duration. Under the recent revisions the company is obligated to set the system again to the stated operation and is needed a separate GL/report for the ineligible ITC however the same must not engage a lot of configurations in their corresponding ERP systems and their AP process i.e both take time and is cost-ineffective.
Annual Summary of the Reversals Made Under Rule 42
Under Rule 42, sub-rule (2) furnishes for the recalculation of the ITC reversal on the basis of the exempted supplies on the grounds of the finish of the year the turnover of the whole fiscal year needs the assessee to either reverse the shortage amount of ITC not reversed before or to claim the ITC amount reversed in surplus in the monthly returns. Through the method, the reversals incurred on the monthly ground under rule 42 might not be named as absolute and the assessee might need to reclaim that in the future. But it resembles that the government skipped to consider the same provision and describe the process to make the adjustments. Transparency is being anticipated. Identical to that if there would be any unintentional mistake in reporting data in Table 4(B)(1), there is no process provided for correction of that.
Read Also: All GSTR-3B Changes for Accurate Eligible ITC Calculation
Need to Reconcile All Transactions of GSTR 2B, Including Ineligible ITC
Under the clarification issued, vide Circular No. 170/02/2022-GST on July 6, 2022, it has been proved that an assessee would be needed to notify the data in Table 4(A) as auto-populated in GSTR 2B of the stated month. Under this reconcile all the line items of form GSTR 2B along with the ineligible ITC and reconcile with the purchase register of the stated month. The same would be crucial for being able to report the true details in Table 4(B) as per the ITC reversals and to assure that the “Net ITC taken” amount in Table 4(C) reconciles with the ITC amount according to the record. The same shall surge the compliance load on the assessee, particularly for the companies:
- No data on the ineligible ITC is available through their ERP.
- Through the use of the manual option to reconcile their eligible ITC with GSTR 2B because of the limited quantum of data.
- Securing merely the exempted supplies like companies engaged in the generation and sale of electricity would not qualify for the ITC, however, the amount of ITC would auto-populate from GSTR 2B the same would be needed to reconcile that and confirm that making the reversals of that.
Notices Issued by the Tax Department Regarding ITC Reconciliation do not Consider Reversals [Table 4(B)]
Taxpayers are getting notices from the tax department, it is because of the friction in the ITC claim amount in GSTR 3B compared with their respective GSTR 2A/2B. Significant observations from the majority of these notices within several states would be that the council does not acknowledge the amount of the reversals that the assessee made in Table 4(B) along with the amount of GSTR 2A/2B recognize would vary from the amounts which have been actually available on the GST portal. Because of this, there would be various instances in which the assessee would have obtained the notice for ITC in which it has already reversed in GSTR 3B of the identical month. Acknowledging the amendments it is anticipated that there would be a rise in the instances of these defective notices which the assessee obtains due to which the taxpayer has been loaded with work concerned with compliance.
The purpose of the government is to restrain the leakage of tax and made the platform digital. They obligate to acknowledge creating the filing of the GST return procedure cost-effective and user-friendly instead of making the process complex that needs strong technology and back-end support of trained professionals since this tends to connect to the numerous reporting needs and auto-population of distinct classes of data segments, disrupted the comprehensive working environment for the assessee.
